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Is the rise in urea prices just a feint? What will the market do? Author/Source: China Fertilizer Network Date: 2020-05-20 Clicks: 5 As the final phase of the fertilizer market in the first half of the year, the summer fertilizer market plays a crucial role in linking the past with the future. A nearly perfect ending to this period could create favorable conditions for the autumn fertilizer market that follows. However, things often don’t go as planned; at present, the summer fertilizer market is facing difficulties, with reduced trading activity and seemingly stagnant demand from end-users. Although urea prices have seen a slight decline recently, pessimism still persists. Since last weekend, local urea prices have risen before stabilizing; the factories that increased their prices did so largely due to previously low pricing levels. Currently, the standard ex-factory price of urea in Shandong and the Two Rivers regions is between 1600–1650 yuan per ton. Given that most factories currently have some orders pending shipment, such local price increases are understandable. However, amid factors such as declining domestic agricultural demand, a significant increase in supply, and challenges in the export market, these price rises lack real underlying support. It seems more likely that prices will remain weak in the future. The trend in urea prices plays a decisive role in determining the trajectory of high-nitrogen fertilizer prices during the summer. Yet, in the current peak season for water-soluble fertilizers, an increase in urea prices is merely an additional factor; even if prices remain weak, it seems “unimportant”. Firstly, raw material costs are favorable. The raw materials used in the production of water-soluble fertilizers are mainly water-soluble nitrogen, phosphorus, and potassium compounds, such as industrial ammonium nitrate, potassium dihydrogen phosphate, and potassium nitrate. If there are no significant fluctuations in the urea market, the costs of raw materials used in water-soluble fertilizers will not change much. Moreover, the prices of other raw materials are currently favorable; for example, the reference price at production sites in Sichuan for potassium dihydrogen phosphate is 7,000–7,100 yuan per ton. After a brief price rebound, these prices have remained stable for now. However, supply is relatively tight in some areas, which will provide some support for maintaining stable prices in the future. Compared to compound fertilizers, the slight adjustments in the cost of water-soluble fertilizers or the inability to change their selling prices frequently mean that their prices will remain stable in the short term. Secondly, seasonal demand persists. At the current stage, demand for compound fertilizers is approaching the end of the summer season, so there may be limited room for additional purchases. Having gone through the spring and summer markets, the traditional peak period for compound fertilizers has passed. However, the seasonal demand for water-soluble fertilizers will continue, especially during summer and autumn. One reason for this is that the planting seasons vary greatly from region to region; the planting seasons for traditional crops are quite distinct, while in the southern regions where economic crops are grown, it is possible to harvest two or even three times a year, with no clear distinction between peak and off-peak periods for fertilizer use ； The second reason is the reduction in the planting area of field crops and the increase in the planting area of cash crops. The level of crop prices directly affects farmers’ willingness to plant crops; the greater profit margins associated with cash crops compared to traditional field crops have contributed to an increase in their planting area. Finally, market competitiveness increases. With the sharp increase in the production capacity of traditional compound fertilizers in recent years, market saturation has grown increasingly severe, leading to frequent price wars; as a result, their competitiveness is much lower than it used to be. The industry of new types of fertilizers, especially the water-soluble fertilizer market, has been expanding, and there has been a significant increase in acceptance among end-users. One reason for this is that water-soluble fertilizers have a much higher utilization rate compared to traditional fertilizers; their unique water-solubility ensures maximum efficiency in nutrient utilization, allowing them to act more effectively on crops while saving time and increasing efficiency ； The second reason is that, due to the considerable demand in downstream markets, competition has intensified, and the requirements regarding the quality of fertilizers have become stricter; only truly high-quality products can gain widespread recognition from downstream users. In summary, it’s hard to say for sure whether this increase in urea prices is genuine or just a bluff. However, if the price increase does take place, it will provide momentum during the period of replenishing high-nitrogen fertilizers in the summer, and it will also be beneficial for the water-soluble fertilizer market. Otherwise, caution is needed. (Feng Hongyang)